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International Macroeconomic Fluctuations in Korea

Authors
Publisher
Institute of Economic Research, Seoul National University
Publication Date
Keywords
  • Structural Var
  • International Macroeconomic Fluctuations
  • Output Differential
  • Real Exchange Rate
  • Trade Balance
Disciplines
  • Economics

Abstract

This paper examines international macroeconomic fluctuations in Korea by focusing on the sources of fluctuations in key international macro variables, such as cross-country output differential, real exchange rate, and trade balance and international transmission of key structural shocks. These structural shocks include countryspecific supply, demand, and nominal shocks. A structural VAR model with long-run restrictions (that are consistent with many theoretical models) is constructed to investigate these issues. The main findings are: (1) supply shocks explain most of the fluctuations in cross-country output differential; (2) all three types of shocks play a non-negligible role in explaining fluctuations in real exchange rate and trade balance; and (3) demand and supply shocks generate opposite signs of correlation between trade balance and real exchange rate.

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